Callaway 2009 Annual Report Download - page 109

deferred income taxes pursuant to ASC Topic 740-25-6. The net amount of $5,684,000, if recognized, would
affect the Company’s financial statements and favorably affect the Company’s effective income tax rate.
The Company does expect changes in the amount of unrecognized tax benefits in the next twelve months;
however, the Company does not expect the changes to have a material impact on its results of operations or its
financial position.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For
the years ended December 31, 2009 and 2008, the Company recognized a net benefit of approximately $190,000
and $195,000, respectively, related to interest and penalties in the provision for income taxes. For the year ended
December 31, 2007, the Company recognized $474,000 of interest and penalties in the provision for income
taxes. As of December 31, 2009 and 2008, the Company had accrued $1,139,000 and $1,329,000, respectively,
(before income tax benefit) for the payment of interest and penalties.
The Company is currently under audit by the IRS for tax years 2005 through 2007. The examination is
expected to be concluded within the next twelve months, the results of which are not expected to have a material
effect on the financial statements.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various
states and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax
authorities in its major jurisdictions as follows:
Tax Jurisdiction Years No Longer Subject to Audit
U.S. federal 2004 and prior
California (U.S.) 2004 and prior
Massachusetts (U.S.) 2005 and prior
Australia 2004 and prior
Canada 2004 and prior
Japan 2003 and prior
Korea 2003 and prior
United Kingdom 2003 and prior
As of December 31, 2009, the Company did not provide for United States income taxes or foreign
withholding taxes on a cumulative total of $74,100,000 of undistributed earnings from certain non-U.S.
subsidiaries that will be permanently reinvested outside the United States. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against
the Company’s U.S. tax liability, if any. It is not practicable to estimate the amount of the deferred tax liability on
such unremitted earnings. Should the Company repatriate foreign earnings, the Company would have to adjust
the income tax provision in the period management determined that the Company would repatriate earnings.
Note 16. Commitments and Contingencies
Legal Matters
In conjunction with the Company’s program of enforcing its proprietary rights, the Company has initiated or
may initiate actions against alleged infringers under the intellectual property laws of various countries, including,
for example, the U.S. Lanham Act, the U.S. Patent Act, and other pertinent laws. The Company is also active
internationally. For example, it has worked with other golf equipment manufacturers to encourage Chinese and
other foreign government officials to conduct raids of identified counterfeiters, resulting in the seizure and
destruction of counterfeit golf clubs and, in some cases, criminal prosecution of the counterfeiters. Defendants in
these actions may, among other things, contest the validity and/or the enforceability of some of the Company’s
patents and/or trademarks. Others may assert counterclaims against the Company. Historically, these matters
individually and in the aggregate have not had a material adverse effect upon the financial position or results of
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